2 QUESTION: The contracts of bay’ al-dayn and bay’ al-inah remain controversial since they are only practised in Malaysia. Discuss the views of the Muslim jurist in this matter.

3 INTRODUCTIONMalay Muslim society in our country is very cautious in involving themselves in riba transactions because of the Islamic injunction against riba since riba forms the integral part of the operation of conventional banks.Majority of ‘ulama in the Middle East do not agree with concept of the Islamic Accepted Bills or Islamic bonds as applied in Malaysia because it involves transactions such as bay’ al-inah and bay’ al-dayn.

4 INTRODUCTIONIn principle, structuring Islamic bonds usually involve three main steps:1) Bay al- ‘Inah asset securitization: Here, two sale contracts (a buyback sale) will be applied in sequence. That is bay’ al-inah.2) Issuance of Bond certificates: The payment by issuer to investors via ‘inah sale is made through the issuance of debt certificate (Shahdah al-dayn). Technically, this simply means a bond sale is underway. However, a bond is only a piece of paper evidencing a debt obligation.3) Bond Trading: For liquidity purposes, the need for trading is vital.

8 DEFINITION INAH contracting a loan (purchasing on credit)MUSLIM JURISTSA sale of a commodity on credit and repurchasing it for a lesser amount in cash

9 Example1:It was reported that Aishah was asked about a transaction conducted by the slave of Zaid bin Arqam.Acting on behalf of her master, the slave sold another slave of Zaid at 800 dirham in credit to Ata' and bought back the slave at 600 dirham in cash.Ruling the transaction, Aishah said, "it was very bad sale and inform Zaid that his conduct has eliminated all his rewards for participating in jihad with the Prophet if he does not repent''.According to the majority of jurists, Aishah assertion clearly indicated that bay' al-Inah was unlawful contract.

10 Example2:IBN RUSHD:For instance, a person said to another person, "I lend you 10 dinar for a month and I want 20 dinar (in return)". "That is not permissible", said the other person. "But you can sell to me this donkey for 20 dinar in credit for a month then buy back the donkey for 10 dinar in cash."

11 DEFINITION BANK NEGARA MALAYSIAA facilitysellsA bank sells a certain property to a customerOn credit terms.repurchasesThe bank repurchases the same property from the customerFor a price lower than its sale priceOn cash terms.

13 The Operation of Bai Inah(I) There must be two clear and separate contracts in the facilitya) The sale contract from the bank to the customerb) The purchase contract by the bank from the customer(II) Payment of the price in the bank’s purchase contract must be on cash terms.(III) The subject matter of the transactions must not be a ribawi item.(IV) In each of the contracts there must be real and valid taking possession of the subject matter of the contract according to the shariah and trade convention.

14 The Operation of Bai Inah(V) The execution of the two contracts in Bay' Inah must meet the conditions required by Imam Shafi’i.(VI) Allocation of the property as the subject matter of the contract must be real and the fixing of the price must also be real and reasonable and according to market price.(VII) The first contract must be executed first (signal by both parties) before entering into the second contract, to avoid the sale of a property not owned by the seller.

17 CREDIT CARD: BIC by BIMBBuy land worth RM15,000 from BIMB in deferred sale2. Immediately sell it back to the same party with RM 11, 000 in cashDiagram 1: Bay’ al-Inah transaction in BIC card model

18 Modus Operandi: 1st STAGEALI (customer)Intends to obtain BIC cardFill up an application formBANKBased on Ali’s financial circumstances,Offer different types of BIC Card –Gold, Platinum etc.Premium Card with large amount of credit will be offered if his annual income is pretty high.Ex: Ali is qualify to have a gold BIC card with credit facility up to RM11,000.In granting the said amount to Ali, the bank will execute bay’ al Inah.BIBM will identify a specific asset to be sold to Ali ex: for RM15,000 in deferred sale.

19 Modus Operandi: 2nd STAGEImmediately Bank will buy back the land from Ali for RM 11,000 in cash.Bank will disburse the cash of RM11000 which is the proceeds of the 2nd agreement into Ali’s BIC wadi’ah account.NOW, Ali can use his BIC card for various commercial transaction.Ali is required to pay back the money he had used within a given period of time.Bank will impose additional payment for the late settlement.

20 Islamic Credit Card (BIC)???BIMB contends that its additional payment for the late settlement is legitimate since it is regarded as profit not interest.The profit id referred to the difference between the sell and the buy back prices (RM RM11000) in the bay’ al-inah transaction so executed.(As referred to example in Diagram 1) In otr words, through the act of selling land to Ali, BIMB is actually entitled RM4000 of profit.However, the profit is only claimed on Ali when he struggles to pay his debt on time.The maximum additional payment however is fixed (ex: RM4000).

21 Islamic Credit Card (BIC)???According to BIMB, the fixed max. profit demonstrates BIC card main advantage over its conventional counterparts.This is bcos in the conventional credit card system, the interest is perpetuate as it is charged compounded until cardholders’ outstanding debts are been settled.

23 Modus Operandi: Bay’ al Inah SecuritizationFirsta spot sale (bay’ mutlak) is executed.If the issuer wants to raise, say, $100 million, assets worth this amount will be identified and subsequently sold to investors on a cash basis.By doing so, the issuer gets the $100 million in cash.Seconda credit sale is instantaneously applied.Here, investors sell back the underlying assets to the issuer on credit, with the price no longer at $100 million, but higher.If investors want a 8% percent profit margin per annum with a 3 year tenure, the selling price should be $100 million + $24 million = $124 million.The underlying asset can be anything as long it has value.It ranges from plant and machineries to concessions awarded by the government.

26 INTRODUCTIONMost ulama’ in their opinions stated that Bay' al-inah is not valid (haram) because it is a device to legitimize riba’ .However, Hanafi of the opinion that Bay' al- inah is only permissible if such transaction involving third party.

27 Hanafi, Maliki & Hanbali;Shafi’i;Validates the contract of inahrefusing to give credence to motive and intention of the partieswould be regarded to be prohibited (haram) or reprehensible (makruh) depending on the nature of the parties’ motiveHanafi, Maliki & Hanbali;Contract of inah is invalida process that despite its legal appearance, conceals an inner motive of earning riba

28 Shafi’I: Bay' al-Inah is HALALAccording to Shafi’i school such sales are to be allowed because, in the words of Imam Shafi’I, contracts are valid (Sahih) by the external evidence that they were properly concluded:the unlawful intention (niyya or qasd) of the parties is immaterial, it does not invalidate their act, unless expressed in that act.Al-Shafii illustrated his teachings with following example, which concerns the marriage of a man who intends to keep his wife for only a short period of time. That marriage is valid whereas a mut’aa marriage is invalid (Batil).The Shafii's considered that the intention of the parties is taken into account only when the invalid intention is explicitly mentioned in the contract.

29 Maliki & HanbaliThe Maliki and Hanbali jurists hold that the contract of Inah are not valid (Sahih) because, according to them;the motive of the parties to the contract determines the legality or illegality of the contracts,and in the sale under consideration the motive of the parties is illegal and,therefore, the sales are not valid because they constitutes a legal device (Hilah) to get a loan with interest which should be averted at all costs according to the Shariah.

30 states that intention influences legal acts: Ibn Qayyim:states that intention influences legal acts:the formality of legal act can be the same but end results depend on the intention.Rasulullah s.a.w says; “Deeds are judged according to the intentions, and every human being will have to take responsibility for what he intended.” {Sahih al-Bukhari}

31 For ex: the sale of arms to people already at war or to bandits.Ibn QudamaIf the vendor of a quantity of juice of grapes knew, either directly or owing to circumstantial evidence that the buyer intended to use the juice in order to make wine, then the contract is void.Maliki Ibn Rushdthe marriage of a muhalil ( a man who marries a woman divorced three times by her husband only with the intention to divorce her afterwards and make lawful her remarriage to her previous husband) is to be cancelled (Batil).is also of the opinion to cancel the sale of any article when the contracting parties intend to make use of that article for an unlawful purpose,For ex: the sale of arms to people already at war or to bandits.

32 It is clear in the opinions of above noted jurists that the intentions are to be taken into account in relation to legal acts as they are in the matters of faith, Islam does not tell Muslims to define an objective, and then use what means they observe fit in order to attain it.Instead, it tells them that if the means are correct, the ends will look after themselves.Islam does not teach us to overcome usury by competing with usurer at his own game.

33 Bay' al inah is INVALID1) behind al-Shafii’s recognition of the validity Bay' al Inahas his personal opinion and not based on interpretation of any authentic Islamic authority.However, according to other schools the prohibition of such sale was based on the consensus of the jurists (Ijma’ al ulama’) on the authority of Islamic law sources.As Ibn Qayyim prohibited Bay al-inah quoting the following Hadith that Allah’s messenger says: “A time is certainty coming to mankind when they legalise (Yastahillun) the Riba under the name of Bay'.”Ibn Umar said: I heard the Prophet of Allah (S.A.W) say when you enter into the inah transaction, hold the tails of oxen, are pleased with agriculture, and give up conducting jihad, Allah will make disgrace prevail over you, and will not withdraw it until you return to your original religion.

34 Bay' al inah is INVALIDWasil b. `Ata is reported to have said that a right judgment can be arrived at through four sources:the express word of the Book,authentic Hadith,Qiyas andconsensus of the ulama’ communityHence, Bay' al-inah, is a violation of the established consensus. Since this sort of sale agreement constitutes the taking of usurious interest as most jurists hold that such transaction should be forbidden.

35 Bay' al inah is INVALIDIbn Taimiyyah divides sales into three groups according to the buyer’s intentions:1) that he purchases the goods in order to use or consume them such as food, drink and the like, in which case this is sale, which God has permitted.2) that he purchases the goods in order to trade with them; then this is trade, which God has permitted.3) that the reason for purchasing the goods is neither the first nor the second, then the reason must be dirhams (money) which he needs, and it was difficult for them to borrow, so he purchases the good on credit (with an increased dirhams) in order to sell it and takes its price.This, then, is ‘inah which is Haram according to the most eminent of the jurists.

36 Bay' al inah is INVALID2) there is hardly any satisfactory evidence which enables one to say that al Shafii has expressly declared that al-Inah to be (Halal).al ShafiI’s method of determining the validity of any contract by its formal evidence that they are legally concluded, cannot be cancelled on account of the intention of the parties, although he had to recognize such intention as forbidden (Haram) but the contract remains valid unless the intention expressed in the contract.

37 Bay' al inah is INVALID not every valid contract is a Halal contractThe Shafii may, thus permits contracts because its legal preconditions are fulfilled, but forbids the transacting act of the parties when it conflicts with Shari’ah principle.

38 Bay' al inah is INVALIDThe following example can illustrate his teaching.Al Shafii states that it is not disallowed to sell a sword to a person who could use it to commit an unjust killing,however, that sort of sale is valid (Sahih), for that person might not use the sword for that purpose.but in the same time Shafii recognizes such transacting act as forbidden (Haram) and the person is not allowed to take possession of the sword (Tamlik), thus preventing the contract from producing its effects.Conclusively speaking, one can say that al Shafii's teaching has reached a level which is similar to the other Muslim schools although the methodology which he adopted appears to be different.

39 Bay' al inah is INVALID Thus, it is forbidden as it is based on3) It is a legal device in order to overcome the prohibition of riba.no person would effect such sale if he cannot realize profitis not deemed to be an act of sale.there is clear evidence that such act amounts to a contract of loan.Thus, it is forbidden as it is based onunjustified enrichment (fadl mal bil a `iwad) or“receiving a monetary advantage without giving acountervalue”.

40 Malaysia Islamic Bond???The use of legal device is therefore an evidence that the niyyah or intention factor is undermined or made secondary in the securitization process of Islamic bonds in Malaysia.It is apparently clear that most underlying assets used in the Malaysian Islamic bond securitization have no direct relation with the actual project itself.These assets were simply collaterals, that serve as guarantees to the debt issued.To retain the basic structure of traditional bonds in Islamic finance, that is providing fixed return to investors, practitioners and the relevant Shariah experts may have wrongly applied Shariah laws, which implies now that the legitimacy of Islamic bonds issued using Bay' al-inah is suppose.

41 Justifications of M’sia Shariah Scholars4) the contract was not clearly prohibited either in the Qur‟an or in the Sunnah. They do not accept the validity of the athar and the hadith which indicate the prohibition of the contract. For them, the athar of Aishah is considered as weakThis justification indicates that the shari'ah scholars try to practice independent ijtihad. In solving fiqh problems of the Islamic banking, they will refer directly to the primary and the secondary sources of Islamic law.As generally known, the primary sources refer to the verses of the Qur‟an and the Sunnah of the Prophet (pubh), while the secondary sources refer to ijma' (consensus), qiyas (analogy), istihsan (legal preferences), 'urf (custom) and etc.

42 Justifications of M’sia Shariah ScholarsThey will also examine the prominent classical jurists' opinions but will not blindly restrict to them.This method contradicts their approach when judging the matrimonial, inheritance, administration of mosque and waqf (endowment) cases where decisions are usually confined to the rulings of the Shafi'is school.

43 Justifications of M’sia Shariah Scholars5) the basis of maslahah, in which refers to the need or interest of Muslims contemporary society. The contract can help the society as well as the Islamic banks achieve their respective goals. Although admitting bay' al-Inah resembles legal stratagem, the contract is accepted for the sake of majority interest. (MIFC)In accepting the maslahah argument, the local shari'ah scholars adopt 'form over substance' approach.The approach focuses on changing the legal terminology rather that the essence of the conventional banking products.As evident in the case of bay' al-Inah, the contract is analogous to usurious transaction.

44 Justifications of M’sia Shariah ScholarsFinancing products created through bay' al-Inah economically has similar effects to the conventional banking loans.Perhaps the local scholars' primary concern in adopting such an approach is to demonstrate the usefulness of various Islamic commercial contracts in today's modern world.By adopting the contracts of bay' al-Inah, bay' murabahah, BBA and etc, they wish to prove that Islamic commercial law has solution to the riba problem even in the complicated banking environmentHowever, critics of the Islamic banking disagree with the approach. Its implementation is seen as a kind of deception which manipulates the religious notion of Muslims for banks' economic profit.

45 Justifications of M’sia Shariah ScholarsHowever, critics of the Islamic banking disagree with the approach.Its implementation is seen as a kind of deception which manipulates the religious notion of Muslims for banks' economic profit.The banking products created through this approach look 'Islamic' in their appearance but maintain the element of riba in their fundamental nature. Therefore, the objective (maqasid) of Islamic banking will never be achieved

46 Al-Qardawi states; concerning Bay' al-inah, that it is a clear case of usury and the device:why should we practice transaction which contains elements of devices while we are in position to have a clear and apparent alternative transaction?Furthermore, muamalat which contains elements of device deviates form the true objective of Shariah.

48 DEFINITION OF BAY’ AL-DAYNAn Arabic term: “sale of debt” = bay’ (sale) + dayn (debt) = sale and purchase transaction of a quality debt.refers to debt financing, i.e. the provision of financial resources required for production, commerce and services by way of sale/purchase of trade documents and papers.Article 158 of Majalah al-ahkam al-adliyah: dayn (either monetary, or a commodity, i.e food or metal) = the thing due i.e the amount of money owed by a certain debtor.

49 NATURE OF BAY’ AL-DAYN Applicable to instruments such as IslamicAccepted Bills (IABs).IAB was introduced in 1991 to provide a shari’ah compliant instrument to conventional banking, particularly for trade financing .Formulated on the Islamic principles of Al-Murabahah (deferred lump-sum sale or cost-plus).The secondary market trading of the instrument is based on Bai ad-Dayn (debt-trading).

50 NATURE OF BAY’ AL-DAYNThere are two types of financing under the IAB facility which apply the concept of bay’ al-dayn, namely:-i) Trade Financing/ Importsii) Trade Financing/ Exports

51 NATURE OF BAY’ AL-DAYN i) Trade Financing/ ImportsThe Islamic bank appoints the customer as its purchasing agent for the underlying goods.the customer purchases the needed goods from the seller (foreign exporter) on behalf of the bank, which pays the seller /exporter and resells the goods to the customer at a marked up price.The customer is typically allowed a deferred paymentSince, the sale of goods by the bank to the customer on deferred payment constitutes a debt, the debt is securitised in the form of a bill of exchange drawn by the bank on and the customer for the full amount of the selling price.The bank can then decide to sell the IAB to a third party on a Bai al-dayn basis.

52 NATURE OF BAY’ AL-DAYN ii) Trade Financing/ ExportsAn exporter, with an approved IAB facility, prepares the export documentation as required under the sale contract or letter of credit.The export documents, shall be sent to the importer's bank.The exporter draws on the foreign commercial bank a new bill of exchange as a substitute bill and this will be the IAB.The bank shall purchase the IAB at a mutually agreed price using the concept of Bai al-Dayn and the proceeds will be credited to the exporter's account.

53 CONTROVERSIES IN BAY’ AL-DAYNIslam permits debt - get out from financial hardship.-only for charity purposes between the rich with the unable –to tie up the brotherhood and promote helpfullness.The creditor cannot consider the lending of the money (debt) to the debtor as a source of income and to get profit from the riba.Islam very appreciates the creditor who does not ask or expect more than what he have gives and only hopes for a high rate of reward from Allah:“If the debtor is in a difficulty, grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew.” (Al-Baqarah:280)The application of debt seems to be complicated due to modern financial development: the debates and arguments is still in the air about this product of bay’ al-dayn.

54 CONTROVERSIES IN BAY’ AL-DAYN1)whether Islamic rules permit the sale of debt.2)whether the debt can be sold to a third party other than to the debtor.3)whether the debt can be sold in deferred payment.4)whether the value of the debt sold to the buyer can be different from the value of the debt given to the debtor.

56 Justification of Malaysian Shariah ScholarOn 21st August 1996, The Malaysian Securities Commission Shariah Advisory Council passed a resolution - accept the principle of bay al-dayn as one of the concepts for developing Islamic capital market instruments.Reason: Islamic jurists allowed this concept subject to certain conditions for instance there is a transparent regulatory system in the capital market to safeguard the maslahah (public interest) of the market

57 Justification of Malaysian Shariah ScholarSome scholars argue that bay‘ al-dayn is restricted to a case where the debt is created through the sale of a commodity.In this case, they say, the debt represents the sold commodity and its sale may be taken as the sale of a commodity.The argument is devoid of force.Once the commodity is sold, its ownership is passed on to the purchaser and it is no longer owned by the seller.What the seller owns is nothing other than money. Therefore if he sells the debt, it is no more than the sale of money and it cannot be termed by any stretch of imagination as the sale of the commodity.

58 Opinion of Muslim scholarsThe Hanafi:not permitting bay al-dayn- the debt is in the form of mal hukmi (intangible property)- the buyer takes great risk because he cannot own the item bought and the seller can not deliver the item sold.The Shafi’i: allows the selling of debt to a third party if the dayn was mustaqir (guaranteed) and was sold in exchange for goods that must be delivered immediately. The debt is sold; it must be paid in cash or tangible assets as agreed.

59 Opinion of Muslim scholarsThe Malikis allow bay al-dayn subject to certain conditions as follows:a) Expediting the payment;b) Debtor present at the place of sale;c) Debtor confirms the debt;d) Debtor belongs to the group that is bound by law so that he is able to redeem his debt;e) Payment is not the same type as dayn, and it fit so, and the rate should be the same to avoid riba;f) The debt cannot be created from the sale of currency (gold and silver) to be delivered in future date;g) The dayn should be goods that are saleable even before they are received. This is to ensure that the dayn is not of the food type which cannot be traded before qabadh occur; andh) There should be no enmity between the buyer and seller, which can create difficulties to the debtor.

60 Opinion of Muslim scholarsZahiris: the debt should not be sold.hadith of the Prophet Muhammad s.a.w.:“Do not sell gold for gold except if they are the same, and do not sell silver for silver except if they are same, and do not sell that which is absent for that which is present.”prohibits the selling of debts because the dayn will always be an absent one, while its price can either be present or absent.

61 Opinion of Muslim scholarsThe consensus among fuqaha’ is that bay’ al-dayn is prohibited either be sold to the debtor or to a third party. This is based on the hadith:أن النبي صلى الّله عليه وسلم نهى عن بيع الكا لئ با لكا لئ (رواه أبو دود)Prophet (pbuh) prohibits sale of debt with debt. (kāl bi kāl).Ibn Rusyd: nasi’ah from this two things are prohibited according to the consensus, either on the subject matter or on the liability because they are included in the sale of الكا لي با لكلى .From the above explanation, it is a consensus among fuqaha’ that bay’ al-dayn is prohibited.

62 Opinion of Muslim scholarsIbnu Qayyim: الكالى is a transaction where the delivery is delayed while the subject matter (‘ayn) is not in his possession:“Do not sell a thing which is not in your possession." [HR. Abu Dawud, an-Nasa’i, Ibn Majah, dan at-Tirmidzi].This situation can raise fraud and great disaster in mu’amalat.

64 JustificatioN of malaysian shariah scholarIsmail Mahayudin from Bank Islam (Institute of Research and Training Sdn. Bhd.): the sale of debt can be sold to a third party.Bay al-dayn is only a short-term financing facility whereby the bank purchases the customer’s rights to the debt, which is normally securitized. The purchase price less Bank’s charges will be credited into the customer’s account. The purchase price of the al-dayn will be agreed upon between the customers and the bank. This al-dayn may then sell to a third party at a discount.

65 Opinion of Muslim scholarsShafi’i’s and Hanbali’s like Ibn al-Qayyim: the creditor has the right to sell only confirmed debt to the debtor or to a third party because he is allowed to give it to the debtor and to a third party too. This opinion is based on the following arguments:i. There is no authentic source that prohibits such kinds ofselling or giving.Thus, it should be allowed and permitted;ii. Creditor has full right on possession and full right to sell itto a third party;iii. Based on a legal maxim, it is allowed, which states thatall transactions are permissible until they are proven non-permissible by an authentic source. So,since there is noauthentic source prohibiting this transaction, then, itshould be allowed.

66 Opinion of Muslim scholarsMost of Hanafis, Hanbalis and Shafis jurists and Zahiris: not allowed to sell al Dayn to non-debtor or a third party at all. (the forbidden sale of al Kali Bil al Kali, sale of a Gharar, sale which the seller does not possess)These rules are attributed to the Prophet’s (SAW) prohibition:“Do not sell what you do not possess”

67 Opinion of Muslim scholarsFurthermore, the selling of al-dayn give rise to the occurrence of Riba between the two debts at the level of inability of the buyer from possessing what he bought, as it is not permitted that the buyer sells before actual receipt of the purchased item.

69 The Shariah permits the selling of the debt by its equivalent in quantity and time of maturity by way of Hawalah.All Schools of Islamic law accept provided it is paid in full and thus gives no benefit to the purchaser.Rationale: financial transactions involving debt should never allow for a payment against the length of the period of the loan, as this would be regarded as riba or Bay’ al-Kali Bil Kali which is prohibited by the Prophet (S.A.W).Thus Bay’ al-dayn for deffered payment is not allowed.

70 the Islamic Fiqh Academy of Jeddah has re- discussed this issue: sale of debt is prohibited because sale of debts to debtors with a deferred payment plan exceeding debt amount = Riba al-Fadl and Riba an- Nasiah. (Jadwalah ad-Dayn)

72 Justification of Malaysian Shariah ScholarSecurities Commission Shariah Advisory Council Resolution: although the bay’ al-dayn is permissibble but it is restricted to a case where the debt is created through a sale of a commodity.the debt represents the sold commodity and its sale may be taken as a sale of the commodity by considering the conditions set by Maliki mazhab which is “payment is not of the same type as dayn, and if it is so, the rate should be the same to avoid riba”.In this context of the sale of securitized debt, the characteristics of securities differentiate it from currency, and hence, it is not bound by the conditions for exchanging of Ribawi goods, therefore, selling debt which is represented non-Ribawi asset is permissible to be discounted.

73 Opinion of Muslim scholarsThe traditional Muslim jurists (fuqahâ’): bay’al-dayn with discount is not allowed in Shari‘ah.The overwhelming majority of the contemporary Muslim scholars are of the same view.However, some scholars of Malaysia have allowed this kind of sale.They normally refer to the ruling of Shâfi‘ie school wherein it is held that the sale of debt is allowed,but they did not pay attention to the fact that the Shâfi‘ie jurists have allowed it only in a case where a debt is sold at its par value.

74 Opinion of Muslim scholarsWhere the price paid for a debt is not the same as the face value of that debt = riba al- Nasi’ah and is therefore prohibited."And whatever riba you give so that it may increase in the wealth of the people, it does not increase with Allah." [Ar-Rum 30:39]Prophet Muhammad (S.A.W) said: “That every loan entailing benefit is usury”

75 Opinion of Muslim scholarsthe Islamic Fiqh Academy of Jeddah: sale of debt is prohibited because sale of debts to a third party with a deferred payment plan whether the debt is paid with the same type of kind or not = sale of debt with debt (bai’ al-kali bi al-Kali which is clearly prohibited by Prophet Muhammad).commercial papers such as cheques, promissory notes and bill of exchange cannot be sold at a discount because there is element of Riba.it is not allowed to deal, issue, distribute or trade with Riba based bonds because the element of Riba is present.It is not allowed to deal with debt notes in the secondary market as it involves discounts and sale of debts to third parties which has Riba elements.

76 Opinion of Muslim scholarsMainstream Islamic scholars: the possibility of earning profit by confirming that any sale of debt or transfer of debt (Hawalat-al-dayn) must be at face value.when the bank buys the instrument of debt (shahada-al- dayn) from the original buyer, it is not entitled to any discount.Doors of riba are closed shut by disallowing any difference between what it pays (purchase price of the instrument) and what it receives on maturity (its maturity value).Notwithstanding the clear verdict against such transaction, some Islamic banks have been offering Islamic bill discounting products.

77 Opinion of Muslim scholarsThey essentially treat debt as any other physical asset that can be traded at a negotiated price. In fact, the prohibition of Bay’-al-dayn is a logical consequence of the prohibition of "riba" or interest.A "debt" receivable in monetary terms corresponds to money, and every transaction where money is exchanged from the same denomination of money, the price must be at par value.Any increase or decrease from one side is tantamount to "riba" and can never be allowed in Shariah.

78 CONCLUSIONThis is the very reason for the controversy about the legitimacy of Malaysian Islamic bonds which renders it to be unacceptable by individual Islamic jurists and institutions outside Malaysia and the Middle-Eastern countries.Islam does not allow the legal devices to be treated as a justification for transactions which Islam regards unjust and against Islamic belief.In Malaysia, the role of the Shariah Advisory Council or Shariah advisors in product development and product approval is not at the initial stage but in the middle or at the end of the process.Most of the financial institutions prefer to present their almost-ready product proposals to the SAC for deliberation ehere they may endorse the product as it is, or may suggest some changes, be it minor or major.

79 CONCLUSIONThe common methodology of product development is simply based on a few fatwas which are very much peculiar to a specific school of law or perhaps to a particular jurist though this has no support from the overwhelming majority of jurists.The objective of this methodology is merely to seek some legal justification or authority to reinforce the ‘Islamicity’ of some new products that are deemed to be feasible and viable in modern Islamic banking and finance.Concern is never given as to whether this fatwa is strong and a preferred one in the Islamic law discourse (rajih).